The vice president of operations of Scott Hall and Associates is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:CategoryRoad Bike DivisionMountain Bike DivisionSales$1,750,000$1,810,000Cost of goods sold1,300,0001,440,000Operating expenses202,000236,800Invested assets1,400,000800,000 Prepare condensed divisional income statements for the year ended December 31, 2021, assuming that there were no service department charges. Using the DuPont formula for return on investment, determine the profit margin percentage, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to two places behind the decimal.) If management’s minimum acceptable return on investment is 10%, determine the residual income for each division. In your own words evaluate the performance of the two divisions, using the performance measures determined in parts (a), (b), and (c).

The profit margin is simply calculated by dividing the amount of income that an organization or…

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Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 5PB: Divisional performance analysis and evaluation The vice president of operations of Free Ride Bike...

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The vice president of operations of Scott Hall and Associates is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:

Category	Road Bike Division	Mountain Bike Division
Sales	$1,750,000	$1,810,000
Cost of goods sold	1,300,000	1,440,000
Operating expenses	202,000	236,800
Invested assets	1,400,000	800,000

Prepare condensed divisional income statements for the year ended December 31, 2021, assuming that there were no service department charges.
Using the DuPont formula for return on investment, determine the profit margin percentage, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to two places behind the decimal.)
If management’s minimum acceptable return on investment is 10%, determine the residual income for each division.
In your own words evaluate the performance of the two divisions, using the performance measures determined in parts (a), (b), and (c).

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